Investors Focus On US Non-Farm Payrolls Data As Pound To Euro Exchange Rate Tests Higher

Published: Friday, 7 September 2012 09:00 BST - Written by John Cameron

STORY LINK Investors Focus On US Non-Farm Payrolls Data As Pound To Euro Exchange Rate Tests Higher

Mario Draghi, the European Central Bank President, stole the headlines in the currency market yesterday afternoon, by announcing his plan for re-introducing ‘singleness’ into the eurozone. Draghi used his post policy announcement press conference to indicate his central bank’s commitment to actively intervening in the global bond markets in order to prop up the governmental debts of the region’s most debt-burdened states.

The ECB’s bond-buying programme is nothing new; the organisation has been tacitly purchasing the debts of countries including Spain, Portugal and Greece for some time now. However, yesterday’s announcement saw the Head of the ECB beefing up these extraordinary measures. The special operations, deemed Outright Monetary Transactions (OMTs), will see Europe’s central bank actively buy the short-term gilts, (dated for maturity in 1-3 years), of nation states which have applied for assistance from the European Financial Stability Facility or European Stability Mechanism. However, the big difference between this interventionary measure and previous schemes is that, this time around, the funds allocated are limitless. This is a prospect which has struck fear into the leaders of the eurozone’s premier economic superpower – Germany. Jens Weidmann, the president of the country's Bundesbank, quickly issued a response to Draghi’s plans. He openly questioned the wisdom of the OMT policy, and expressed his concerns that it might lead peripheral debt-addled European states to become totally dependent on a drip-feed of cheap money from Brussels, causing them to abandon their current austerity plans.

The euro initially firmed on Draghi’s announcement, but by close of play for yesterday’s European equities session, the single currency had given up much of these initial gains to leave the GBP EUR exchange rate back in the 1.26s once more, as fears that Germany might be set to scupper the debt plan escalated.

The major risk event of note today comes in the form of Augusts Non-Farm Payrolls figure in the US. Expectations for the key release have been upwardly revised following yesterday’s relatively strong American labour market numbers. A low print for last month’s NFPs is expected to stoke speculation that the Fed will ramp up its QE scheme sooner rather than later. Such a scenario could see the GBP USD exchange rate settle back in the 1.6000’s.

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